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Carl Fimble

Penny Shares

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Check you lot with your new sub forum!

It's likely somewhere I'll not be visiting much as I'm skint, quick question though if that's okay....

 

Is there such a thing as a penny share? Can someone with little spare cash do anything worth doing with shares? 

I reckon that could be quite a fun little game to play, and I'd get quite into picking stocks and looking at events then working out what do buy/sell. 

I'm a bit concerned at the moment with the way the world is, so I'd be looking at physical and useful items as an investment way before shares, but a little dabble with spare money would be nice. 

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The shares we are discussing fall into the penny share category. 90% of people who trade them fail in as little as two years. If you pick right however you'll stand to make many multiples more than what the bluechips can as the old saying goes elephants don't run.

the hive mind of contributors to this subsection are worth their weight in gold. 

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14 minutes ago, Craig said:

Last penny share I bought was Sirius Minerals, and now look at the state of it...

Right there with you!  This month is do or die and im leaning more to the die...

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Investing in penny shares goes likes this.

Unless the company is unique in their "story" be prepared to be stuck with the stock for a long time. The stock will have to advance at least 10% just for you to break even from day 1, from the spread between buy and sell.

A lot of jam tomorrow stocks are mineral/oil/gas/gold explorers in far flung places that will never become a mine, or some tech/biotech company with a great idea at a very early stage, and will keep issuing shares to keep the lights on. You invest with the mindset, you'll be there for the whole journey, which will probably only be 12 months. The reality could be 10 years to never. More likely you'll get bored and sell out at a loss after 6 months.

The are largely two ways you are going to make money from the shares.

1. You stick around long enough for the company to become something, and you cash out after the insiders, the founders, the directors, the market makers, the brokers and promoters, at a profit. There have been a handful of examples of these penny stocks during non-bubble times such as ASOS.

2. You have a plan to sell to another punter at a higher price than you bought it at. 

Strategy 2 is more likely to be successful, and we already have people using social media as a tool to generate the temporary interest (pump and dump).

If you want to be successful with penny shares, you have to be truthful to yourself, and your expectations at the beginning.

 

Edited by 201p

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What one also needs to remember is that the outcome of success with a penny stock does not change, no matter the amount of research you do on the internet or other sources. Some people read every scrap of information, every bulletin board message, talk to management, visit the company premises etc. This does not mean that the market will come around and suddenly buy up the stock because you spent all week combing every spot of detail out there. The market can remain irrational longer than you can remain solvent!

More information may give you the confidence to risk more, that is all.

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12 minutes ago, 201p said:

Investing in penny shares goes likes this.

Unless the company is unique in their "story" be prepared to stuck with the stock for a long time. The stock will have to advance at least 10% just for you to break even from day 1, from the spread between buy and sell.

A lot of jam tomorrow stocks are mineral/oil/gas/gold explorers in far flung places that will never become a mine, or some tech/biotech company with a great idea at a very early stage, and will keep issuing shares to keep the lights on. You invest with the mindset, you'll be there for the whole journey, which will probably only be 12 months. The reality could be 10 years to never. More likely you'll get bored and sell out at a loss after 6 months.

The are largely two ways you are going to make money from the shares.

1. You stick around long enough for the company to become something, and you cash out after the insiders, the founders, the directors, the market makers, the brokers and promoters, at a profit. There have been a handful of examples of these penny stocks during non-bubble times such as ASOS.

2. You have a plan to sell to another punter at a higher price than you bought it at. 

Strategy 2 is more likely to be successful, and we already have people using social media as a tool to generate the temporary interest (pump and dump).

If you want to be successful with penny shares, you have to be truthful to yourself, and your expectations at the beginning.

 

This is my exact experience. Lost several k 15 years ago. Wouldn't touch them again. Also, you will be the last to know any bad news.

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14 minutes ago, 201p said:

Investing in penny shares goes likes this.

Unless the company is unique in their "story" be prepared to stuck with the stock for a long time. The stock will have to advance at least 10% just for you to break even from day 1, from the spread between buy and sell.

A lot of jam tomorrow stocks are mineral/oil/gas/gold explorers in far flung places that will never become a mine, or some tech/biotech company with a great idea at a very early stage, and will keep issuing shares to keep the lights on. You invest with the mindset, you'll be there for the whole journey, which will probably only be 12 months. The reality could be 10 years to never. More likely you'll get bored and sell out at a loss after 6 months.

The are largely two ways you are going to make money from the shares.

1. You stick around long enough for the company to become something, and you cash out after the insiders, the founders, the directors, the market makers, the brokers and promoters, at a profit. There have been a handful of examples of these penny stocks during non-bubble times such as ASOS.

2. You have a plan to sell to another punter at a higher price than you bought it at. 

Strategy 2 is more likely to be successful, and we already have people using social media as a tool to generate the temporary interest (pump and dump).

If you want to be successful with penny shares, you have to be truthful to yourself, and your expectations at the beginning.

 

 

8 minutes ago, 201p said:

What one also needs to remember is that the outcome of success with a penny stock does not change, no matter the amount of research you do on the internet or other sources. Some people read every scrap of information, every bulletin board message, talk to management, visit the company premises etc. This does not mean that the market will come around and suddenly buy up the stock because you spent all week combing every spot of detail out there. The market can remain irrational longer than you can remain solvent!

More information may give you the confidence to risk more, that is all.

Two top posts there.

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You also have to watch the FTSE-AIM all share index. Liquidity is very important in smaller stocks. When everyone is buying, it is easy to get out of a penny stock. Let's say you have accumulated £5000 in a penny dreadful - in normal times it is hard to sell £5000 online in one go. The "normal market size" may be just £500 lots. And if you want to get shot of £5000 in a hurry, you're going to have to wait (low liquidity). This is what I believe a lot of new investors don't realise. You just have to hope a specialist fund wants to accumulate a position, or someone has remortgaged their house to punt on the stock. Remember professionally managed money won't be permitted to buy penny stocks/small caps, so you have to factor this in, in Strategy Number 2.

If the market is red hot then you'll have more liquidity.  We've had a good run between 2016 and 2018. Now, less so.

image.thumb.png.4eba8e060ebd4c96da2860c3e668c59d.png

Edited by 201p

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Untitled.gif.938e09f07dbf2d020cd42a892eeb5a87.gif

Let's use a case study.

This stock has a loyal following, and a year ago the analysis behind it was super bullish. It was going to be the next ASOS (the Holy Grail phrase in the AIM community, 2.5p to £80 a share).

If you had bought £5000 of stock at 40p a year ago, in hindsight, could you have done more research? Could you have ramped the stock more each day to help it along? The share is some 60% down today.

The correct answer is to have a trade plan at the start, do your own research and be prepared that any trade is a 50/50 bet that it could go wrong. Now in some alternate dimension this stock might be £1 a share now, but we all move forward in time without a crystal ball. So you must trade accordingly. 

Start with the phrase, this is a great stock on paper, I shall speculate that it may go up based on the fundamentals, and I will risk X amount to be proved right over X amount of time. If the stock obeys round numbers (you then have some idea how much you are going to lose already if you are wrong), then you have a chance of making some return. If you did a little better than break even, then at least you have acquired some experience of being a "trader" and did better than having the cash in a savings account.

Edited by 201p

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3 hours ago, Craig said:

Last penny share I bought was Sirius Minerals, and now look at the state of it...

This chart tells me one thing only - people used the spikes to profit. Don't be impaled on a spike!

Such "spikey" shares are hard to buy and hold, the emotional roller coaster is just too much. One word, "Buckaroo."

image.thumb.png.e621ee985849122d2a7cac1f4100089e.png

Edited by 201p

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31 minutes ago, 201p said:

You also have to watch the FTSE-AIM all share index. Liquidity is very important in smaller stocks. When everyone is buying, it is easy to get out of a penny stock. Let's say you have accumulated £5000 in a penny dreadful - in normal times it is hard to sell £5000 online in one go. The "normal market size" may be just £500 lots. And if you want to get shot of £5000 in a hurry, you're going to have to wait (low liquidity). This is what I believe a lot of new investors don't realise. You just have to hope a specialist fund wants to accumulate a position, or someone has remortgaged their house to punt on the stock. Remember professionally managed money won't be permitted to buy penny stocks/small caps, so you have to factor this in, in Strategy Number 2.

If the market is red hot then you'll have more liquidity.  We've had a good run between 2016 and 2018. Now, less so.

image.thumb.png.4eba8e060ebd4c96da2860c3e668c59d.png

This is also an excellent point. "Investing" in a company with a market cap of, say, £1m-10m, with a bit of a run it is not hard to end up with 0.1-1% of the entire stock. As 201p states, if the share maintains a following, it might be fairly easy to sell on your holding. On the other hand, you may find very little interest in allowing you to liquidate and make off like a bandit.

Ask me how I know...

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If you know about Poker, then you know about probability and odds. Penny stocks during normal times, means the odds of picking a winner, and being at the right place at the right time (when the pumpers and dumpers are targeting the stock), is LOW. If you are aware of this, then you have a chance of surviving in this market.

Here are some penny stocks I have picked at random from memory. VOG I remember being talked about on the So-Called BBC's dedicated shares programme (Working Lunch) some 10 years ago. See what I mean by low probability of success?

Untitled4.thumb.gif.4a71f8b0bf8b64deca2533dae953242f.gif

OBC has gone through a change, it was regarded as a dotcom stock, which is why there is a spike in the 2000s. Today it is on the next trend, blockchain/bitcoin!

You can divide these stocks into various categories (I should write a book now).

1. News driven stocks which spike on news. They have no earnings, worst case - they are typically CEO lifestyle companies masquerading as a business!

2. Small business ideally geometrically expanding, and going national and then global. There is steady year on year growth, and they turn a small profit. This is the most boring stock, but the pros such as Slater [Zulu Principle] and O'Neil recommend you should start here. 

3. Sector/Group Stocks out of fashion, typically the bulletin boards are quiet, but the cycle turns to them, and a rising tide lifts all boats. Currently Precious metals stocks are having a good run. This has a double effect if this stock in Number 1 category.

4. Damaged stocks - some disaster in the business in the past, but has had money injected to save the business by a 3rd party. The stock is horribly diluted. It will take a lot to turn the business around and reward the original share holders before the dilution.

4. No hopers that fall and fall until they are delisted. These do the worst damage to financial health for people that have also fallen in love with the share. They can damage real world relationships because typically they do no tell their loved ones what they have invested in, and become horribly depressed over the many years that the share languishes. 

Edited by 201p

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42 minutes ago, 201p said:

They have no earnings, worst case - they are typically CEO lifestyle companies masquerading as a business!

Funny you should say that. Just last week I became aware of firm near me that's a penny stock. I asked a mate who is a postman in the area. He said he delivers to the CEO and he potters about with old cars in his garden. I looked at the stock and the last 2 years profit before tax is about -£250k. 

Edited by Democorruptcy

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I am just flicking through the advfn free bulletin board, and this appears to be hot at the moment, ECO Oil and Gas. This might not be classed as penny stock, but it could be something that you could end up in by chance if get a good drill result . WHOOSH. See how 50p, £1, and £1.50 are key round number areas.

image.png.061e20fbcd56764fd6a2671bd44439d0.png

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15 minutes ago, Democorruptcy said:

Funny you should say that. Just last week I became aware of firm near me that's a penny stock. I asked a mate who is a postman in the area. He said he delivers to the CEO and he potters about with old cars in his garden. I looked at the stock and the last 2 years profit before tax is about -£250k. 

When you dig deeper, it's funny that some registered addresses of the business is a semi detached house somewhere! Google street view has saved people some hard earned cash I think for many. The smarter ones use a shared (another AIM company) London office to make their business sound more legit.

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Thanks for this @201p. Personally (although I'm fairly new to all this still) I treat anything that's a "penny" stock as a risk in the same way I would a bet on a horse. If I make more than 50% on it I look to sell (HZM recently was an anomaly because it made 100%+).

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Also, know what you are getting into. Big well known names can be turned around, some cannot.

Case study - Thomas Cook. This is now a penny stock. I was around when Woolworths, Yellow Pages, HMV, and Game showed a similar pattern, but many punters put a lot on the line in the hope that some day, the penny stock would be £5 or £10 again. 

image.png.e00342a49612a26ddc520f8f299fe6a3.png

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1 hour ago, Hardhat said:

Thanks for this @201p. Personally (although I'm fairly new to all this still) I treat anything that's a "penny" stock as a risk in the same way I would a bet on a horse. If I make more than 50% on it I look to sell (HZM recently was an anomaly because it made 100%+).

image.png.768e32ce4133edb9b55e7d3e0ee86154.png

Great timing! Could you repeat the process over and over, systematically is the big question! 

HZM looks interesting, and the story sounds interesting right now. I don't know if this has been trading as the same company from 2006, but there have been dark times for this stock from 2011 to 2016. Nickel has also been in dark times from 2008 but we could be starting a new bullish cycle.  

The spread is 6.38% and the normal market size is 100,000 shares (£4,950) according to Lse.co.uk. There are 1.4bn shares in issue. 

This information isn't recorded historically as far as I know. Let's see what this is in 12 months time. Remind me to come back to this on the 10th September 2020.

The stock price is too low for me to buy into as I can't manage the risk as tightly as I would like.

This is the latest interview back in June that I found.

 

''This news today is really the catalyst to start seeing the level of interest in the market ... we've had a number of inbound inquiries and it'll be interesting to see how this project develops over the next 12 months'', Martin says.

 

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Thanks for all this info @201p .  You pointed out a few things I hadn't thought of eg how easy it might not be to get out of a penny stock.  I have some HZM and am holding for the moment and look upon it as a bet which could go either way. 

19 hours ago, Ponty Mython said:

Ask me how I know...

I too am curious..............

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You can always do a dummy sell, in various lots and see if the market will take the shares even if you don't intend to be selling.

Do this at different times, when the twitter feed is quiet, and when it is busy.

#HZM

You can't dummy buy if you don't have the cash in your account usually. This is why it is worth holding some cash in there so you can test the waters.

Edited by 201p

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Where did all these share investors come from?

If you are just getting into "penny" shares, then a word of warning - you will pay your entrance fee to the market.

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On 10/09/2019 at 10:16, longtomsilver said:

The shares we are discussing fall into the penny share category. 90% of people who trade them fail in as little as two years. If you pick right however you'll stand to make many multiples more than what the bluechips can as the old saying goes elephants don't run.

the hive mind of contributors to this subsection are worth their weight in gold. 

I limited myself to a thousand and normally in the 30-50 p range.              I lost on a few but made quite a few quid on others i.e. Rockhopper matd tw. G k p I lost on some that went on to do quite well i.e.      Iqe I was trying to swing trade basically i.e. Fast profit   My biggest disaster from memory would be San Leon I think it's ticker was sle 

Edited by stokiescum

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